Investors are increasingly leaning towards European hedge funds, as highlighted in a recent BNP Paribas survey that revealed 37% of investors allocated capital to this region in the first half of 2025.
This trend is primarily driven by rising policy uncertainties and tariffs in the U.S., prompting wealthy investors to diversify their portfolios geographically. European funds captured over half of total hedge fund inflows, with credit hedge funds leading at $4.5 billion. Smaller to mid-sized hedge funds, particularly those under $10 billion, also benefited from this trend.
Despite 73% of hedge fund investors remaining U.S.-based, interest in Europe and Asia-Pacific is on the rise. The survey encompassed 140 financiers across 16 countries, representing $960 billion in hedge fund assets. In May 2025, global investors withdrew $24.7 billion from U.S. equity mutual funds and ETFs due to concerns over fiscal policy, rising debt, and potential trade-induced recession. In contrast, European funds garnered $21 billion, marking a significant increase, while emerging market ETFs attracted another $3.6 billion.
Key drivers of this shift include a weakening U.S. dollar, declining interest in U.S. Treasury bonds, and appealing economic policies and valuations in Europe, where markets have outperformed U.S. counterparts.
The European Central Bank has cut rates eight times in a year, supporting lower interest rates. Since early 2025, MSCI Europe has risen nearly 20%, while U.S. and Asia-Pacific indices increased only modestly. The growing preference for European hedge funds reflects a strategic pivot among investors, seeking stability and favorable conditions amid uncertainties surrounding U.S. policies.
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